Under 30, Over $1M in Debt

July 07, 2014

Under 30, Over $1M in Debt

If you're not from a farm but have time to venture out for a summer drive along some of the interstates crisscrossing Illinois, Iowa and Indiana - take a look at what might be a record corn and soybean crop. We've had some hot humid days, but for the most part, cooler nights and spoon-fed rains spread out across May and June have setup this to be a massive crop. As I received an email blasted to us bloggers requesting July content, I'm contemplating the beauty in my fields as well as the beast in the crop markets. Apparently, the market knows we're going to have record crops because today (June 30th), the markets turned bearish and started beating down prices. Soybean prices for our current crop are down $0.70 per bushel (~6%) and corn prices are down $0.22 per bushel (~5%). That's one day, after a key USDA report. Given these stark contrasts, I figured 'd touch upon a suggested topic: financial risks and rewards in farming from an under-30 point of view.
 
In my Sunday School Class (I was "promoted" to Junior High!), I brought up the concept of praying for peace (Philippians 4:6-7). My example, since I know that big numbers and personal examples get through to my "tweener"-aged youth, was on how much money I lost as an opportunity cost while helping with our Vacation Bible School last week. I figured that the stresses of life distilled into a dollar figure would warrant a good example of how prayer in my life gives me peace. One of my other enterprises is crop scouting for area farmers. While I'm winding that part of the business down, trying to harmonize it with our family insurance agency and make more time for our new son, it still is a profit center and is still a source of some stress at busy times. Rough figures, attending Vacation Bible School "cost" me about $2,500 in lost revenues. The reality is that as my scouting has slowed by design, I didn't much "lose" anything (I did lose some dignity and sanity while getting hit with pool noodles, tackled inside inflatable bounce houses, and portraying the evil villain in morning skits; but who goes to VBS to be a diva anyway?) - but it did serve an example of how and when one should pray for peace. I sure needed reminded of what mattered most last week when I wasn't at the farm 50% of the working hours. 
But for purposes of this blog, the first response from one of my older youth (I have 6th-8th in our Junior High setup) was: Are you rich? It didn't offend me, but it did jar me a bit that that was their first reaction instead of what I was trying to teach. I suppose one of my wife's favorite quotes - she's an Ag-Communicator by trade - s true: You're responsible for what you say as well as what they hear.

So, am I rich? It's funny that this all came up this past Sunday. Peace from prayer was not only a good topic for my class, but also for me. And it was also my birthday. While I'm not at the dreaded 30, being my first birthday as a father, I did have some surreal thoughts running through my head that day. Asking myself if I'm rich was another good question for reflection.

By balance sheet standards, yep, I'm rich. Not many 28-year-olds in the world over have over a million in assets though when I read Forbes, The Economist, or some other business literature, I sure feel like I'm the outsider there. While I'm not going to do formal research for this blog, suffice it to say that I know I'm probably better off than 99% of the under-30-year-olds in the entire world, financially.
 
But with great rewards come great risks, luck, skill, and (in my case) large doses of humility. Humble enough, I hope, to warrant not being part of the stereotypical 1%. Most of my assets are tied up in land and farm equipment. Let's take a look at each in brief from a young farmer's vantage:
 
Land is the best "real" investment as it doesn't truly depreciate or wear out, in general. But this makes it so attractive and, given that less than 1-2% of the nation's farmland transfers ownership in a given year, it's a relative scarcity - so it's overvalued. In fact, I read once that there was never a time, except for the last few years of the 80s and first few years of the 90s, when farmland cash-flowed by itself. This means that no purchase of land paid for by itself, rather, it was paid for by an already established land base. And this one exception in the 80s/90s was more than likely luck - who saw depressed land prices slowly rising as interest rates moderated and commodity prices skyrocketed in 1994/1995? Very few. But many, who were willing to take the risk, benefited. They were the opposite of the risk-takers in the 1980s. That farm financial crisis led to many, many farms going bankrupt. So what does this mean to an under 30 farmer? Think of your competition. The average farmer is 57, and survived the worst time in the last 50 years to farm in the 1980s and has an established land base to help pay-off land purchases. While my land assets look good on paper, they're still not without great risk. If the land I purchased tanks in value (unlikely, but certainly not impossible), I could easily be in the same situation as consumers with underwater mortgages. The problem is that if that happens, it likely means that corn and soybean prices have went into multi-year declines or interest rates have increased... or both. Since young farmers don't have the land base to dilute the price of newly purchased land, a downturn is particularly damning. If this sounds like the plight of other young entrepreneurs, it is. Farming might be different for all the unique challenges of Mother Nature, but a business it still is. I can relate with young entrepreneurs in this economy quite well. And the long-term liabilities of my balance sheet from land purchases show it.
 
Farm equipment is double-edged sword. Failure to invest in technology leads to a slow death of stagnation in any business. But equipment depreciates, needs to be maintained, and is constantly outdated by the latest upgrade. It costs more than what a price tag lists. I don't own all the farm equipment, rather I own units in our family limited liability company. We formed it to hold the equipment for accounting purposes. But each year the value of those units declines. It sure looks good on paper, but it is like dry-rot in your house. If you don't maintain your house and make occasional upgrades or full-blown renovations, you're hosed. Farm equipment is the same. The intermediate-term liabilities on my balance sheet show it.
 
And both of these assets are intermediate or long-term. What about the short-term? The risk there is in weather and price. Going back to my opening paragraph, think about today's price decline. $0.70 per bushel of soybeans is quite a bit, and $0.22 per bushel of corn isn't insignificant (my Grandpa's generation barely saw prices move more than $0.10 the entire marketing year!). If one hadn't sold any production ahead or done any futures and options hedging, a typical 1,000 acre farm (500 corn @ 180 bushels per acre and 500 soybeans @ 50 bushels per acre) would have lost $37,300 - that's ONE DAY. Now that's a bit over dramatic - farmers don't keep their heads in the sand, oblivious to price or weather risk. That's why we hedge. And the opposite could have happened too - what if the market went up that much? Sounds great. But the counter to that scenario selling ahead and missing the benefit of the price increase. In any case, today is a good point on risks we face. If you're under 30, then the average farmer at 57 has 27 more years of experience. Agriculture is evolving and youth has its advantages - but I take experience over college education when I'm on the fence (that's why, among other reasons, I still need my Dad).
 
Our family just bought a farm on June 20th. Over a million dollars. I'm rich, right? Go to the courthouse - the bank, technically, owns it; they're just renting it to me on their terms for the next 20 years. And what if I'm buying at the high? For the record, I really think we are buying at the high for at least the next 5-10 years. Dumb investment, right? Not in my opinion. I'd rather be a fool to my peers and a genius to my heirs or charities. The real challenge of being under 30 and over one million in debt is in taking the long view. That's where the rewards accrue if you can manage all the current and intermediate risks. On my 28th birthday, upon reflection, I didn't really think I had accomplished much in my life. But then I remembered, my Grandpa didn't make his first big land purchase until he was 40. I guess I'm at least 12 years ahead of the best man I ever knew - financially anyway.
 
Back to the main point on rewards versus risks: am I rich? If I am, it's muted by the risks I bear along with others my age in farming. If I am, it's if one turns a blind eye to the liabilities column of my balance sheet. If I am, I'm not taking enough vacation time to enjoy the spoils of my riches. In light of all this, I still don't consider myself a success yet. At least, not financially. I have a wonderful wife, an amazing 7-month old son, wonderful and supportive parents/business partners, a great sister and brother-in-law, and many supportive friends. My faith, my work give me purpose. I really am rich. But it's only because I remind myself of what I really have not listed on a balance sheet. The greatest risk I bear is in forgetting that. Under 30 and over a million in debt isn't so bad; my riches aren't in an account.

 

Andrew Bowman

Andrew and Karlie Bowman Oneida, IL

Andrew is a fifth generation Illinois farmer. He and his wife Karlie have one son, Ryker, and farm with Andrew’s parents, Lynn and Sally Bowman, in addition to serving farmers through insurance and consulting enterprises.

 

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